The World Bank has raised US$100m from a plastic pollution outcome bond it announced last month, using a principal-protected structure that reunites several participants in its previous outcome bond deals.
Citigroup was lead manager for the Luxembourg-listed deal, which links its coupon payments to plastic credits from waste collection and recycling, as well as carbon credits. Projects in Ghana and Indonesia will generate the credits, which will be issued on Verra, the carbon standard for the rapidly growing voluntary carbon offset market.
The seven-year bond pays 1.75% plus capped amounts linked to the project's credit generation. While the cash payout is below market rates, the overall package "offers investors a potential financial benefit compared to regular World Bank bonds of similar maturity if the projects and monetization perform as expected", the World Bank said.
The bond also carries an "additional redemption amount" at maturity in 2031 linked to a share of "outperformance" in sales of plastic credits by Plastic Collective UK, an NGO that Citi worked with on the deal.
The coupon structure enables upfront financing of projects to increase capacity, expand to new collection and recycling sites, and instal food-grade recycling equipment. This "allows fixed-income investors to support development projects that would otherwise struggle to secure financing", said Philip Brown, Citi's global head of sustainable debt capital markets.
The US bank had already led three World Bank outcome bond landmarks – a US$100m note supporting the United Nations Children’s Fund during the pandemic; a US$50m emissions reduction-linker last February, which provided upfront financing for a water purification project in Vietnam; and a US$150m rhino bond a year earlier. Credit Suisse was joint lead manager on the rhino deal.
Major challenge
Velliv was a lead investor in the new issue. The Danish pensions and life insurance firm was previously the lead buyer of the five-year Vietnamese deal and also bought part of the rhino bond.
Other buyers of the plastic pollution bond included Mackenzie Investments in Canada, Sweden's Skandia and US asset managers Muzinich and T Rowe Price.
The deal addresses a significant source of pollution, At a World Bank event at last year's COP28 UN climate conference in Dubai, treasurer Jorge Familiar described the collection and recycling of plastic as “a major challenge that we are all facing”.
Speaking at the same event, Asbjorn Andersen, senior portfolio manager at Velliv, welcomed the plastics bond. “We have capital to deploy and … we think these kinds of structures are really interesting,” he said, noting that Velliv is "focused on the real impact – or the additionality – that we can try to achieve and to increase the impact per dollar that we actually invest”.
Poppy Allonby, head of ESG enablement at T Rowe Price, which invested in the rhino bond and runs a number of dedicated impact investment funds, agreed. “Investors are flagging impact investment as an area that they would like to be exposed to.”
Food focus next
The World Bank is ramping up its outcome bonds, with its next wave likely to focus on food production.
The Washington-headquartered supranational is also exploring project areas including agro-forestry and land use as it seeks to scale up this area of its US$50bn annual issuance.
At COP28 the supra also announced a partnership with the UAE ministry of climate change and environment to work on outcome bonds in connection with a food security initiative that the UAE announced at COP27 in Egypt in 2022.
Outcome bonds "align incentives so that investors benefit financially when positive development outcomes are achieved”, said Anshula Kant, World Bank Group chief financial officer. "They create a win-win with the local communities and ecosystems that benefit from less pollution, and we will continue issuing them."
Additional reporting by Tessa Walsh.